This legislation supports the introduction of mandatory payrolling of certain employee benefits in kind from April 2027. Instead of reporting these benefits to HMRC at the end of the tax year, employers will report them in real time through payroll so that the right amount of tax can be collected as employees are paid.

The legislation also allows HMRC to provide a temporary penalty easement during the first year of the new system, helping employers transition to the changes without being penalised for certain genuine mistakes.  

In addition, it updates the rules for calculating the taxable value of classic cars provided as a workplace benefit.

From April 2027, some benefits in kind must be reported and taxed through payroll in real time. These changes will apply to company car benefit, company van benefit, car and van fuel benefit and medical benefit.

This means that any Income Tax and Class 1A National Insurance contributions due will be collected through an employee’s pay during the tax year. Employers will no longer need to report these benefits on P11D and P11D(b) forms after the end of the tax year.

From April 2027, employers will be required to payroll:  

• Employers will have the option of voluntarily payrolling all other benefits in kind if they choose to do so. 

From April 2028, most other benefits in kind will be mandated to be payrolled. 

It will not be mandatory for employer-provided loans and accommodation to be payrolled.

These benefits are commonly provided by employers to their employees. They are also widely payrolled voluntarily, making them the most practical starting point for the reform.

The changes are being phased in to give employers, payroll providers and agents more time to prepare and adapt their systems, helping ensure a smoother transition.

Some employers have already started preparing for the changes to ensure that their systems and processes are ready for real time reporting of benefits in kind. We wanted to ensure that the time and effort they have put into their preparations is not wasted.

Employers should: 

• review which benefits they provide 
• consider what changes may need to be made to their payroll process to report benefits in kind in real-time 
• speak to their payroll software provider if they have one
• check GOV.UK guidance on preparing for mandatory payrolling of benefits

It is too late to register to report benefits in real time for the tax year 2026 to 2027. However, employers can register to voluntarily payroll benefits that have not been mandated to be payrolled for the tax year 2027 to 2028.

Employers will need to register to voluntary payroll by 5 April 2027 for the tax year 2027 to 2028.

Employers who have already registered for voluntary payrolling of benefits in kind for the tax year 2026 to 2027 will not be affected. They can continue payrolling their benefits through the tax year 2026 to 2027.

Payrolling benefits in kind from 6 April 2026 to 5 April 2027 remains voluntary. If an employer changes their mind about voluntarily payrolling benefits they must wait until the end of the tax year before they stop payrolling.

They’ll still need to deduct tax each payday and report this deduction to HMRC.

We hope that the announcement to phase the delivery will provide more time to prepare and reduce the risk of employers facing cash flow issues. It gives additional time for businesses to prepare for their new Class 1A National Insurance contributions payment schedule.  

HMRC will continue to work with industry to consider how best to support employers to prepare for the new Class 1A benefits in kind payment rules from the start of the tax year 2027 to 2028.

If issues with cashflow are causing hardship, contact HMRC.

The data fields mainly represent what is currently collected on the P11D and P11D(b) forms. This excludes company car fields, as many of these are already available in the Full Payment Submission (FPS).

The intention is to only ask for the same amount of information as is currently required.  

Employers will only be required to complete the relevant fields in relation to the benefits they have provided to their employees. For example if no medical benefit has been provided, employers will not be required to add any data to that section of the FPS.

From April 2027, P11D and P11D(b) forms will generally only be required where: 

• benefits have not yet been mandated for payrolling

Employers will be able to notify HMRC where specific employees, or particular benefits, need to have an exception from mandatory payrolling and reported via P11D or P11D(b) instead. 

Further details will be set out in future guidance updates.

HMRC will clearly communicate the revised timing and phasing of mandatory payrolling of benefits in kind ahead of updating interim guidance and technical detail. We will take a supportive and proportionate approach as the reform is introduced. 

We increased customer engagement with employers, software providers and payroll professionals over the summer to improve understanding before finalising guidance and publishing revised technical specifications. 

We will continue to share the latest information through our established channels, including the Employer Bulletin, agent update and webinars, along with ongoing engagement through regular stakeholder forums.

Class 1A National Insurance contributions on affected benefits will be reported and taxed in real time rather than annually, aligning with payroll processes. 

From April 2027 to April 2028, it will be mandatory to report and collect Class 1A National Insurance contributions alongside Income Tax for cars, vans, car and van fuel and medical benefits in kind. 

For all other benefits in kind, Class 1A National Insurance contributions and Income Tax will be reported after the end of the tax year. Tax will be collected from employees in the next tax year, potentially by a change to the employee’s tax code, unless an employer chooses to payroll those benefits voluntarily.

If benefits are voluntarily payrolled, the associated Class 1A National Insurance contributions must also be reported and paid through payroll in real time.

The amount of Income Tax and National Insurance due is not changing. The reform only changes how and when the tax is collected. Instead of using an estimated benefit value in an employee’s tax code, tax will be calculated through PAYE using information from the employer.

Most employers report the benefits they provide to their employees after the end of the tax year. This means any additional tax due is paid in a later tax year.

From April 2027, there will be a number of benefits that will need to be reported in the year they are provided and not at the end of the year. This is known as “payrolling”.

When mandatory payrolling starts, employees will be paying tax in real time on the benefits in kind  they receive for that year, while also catching up with payment of tax for the benefits in kind from the previous years.

However, they are not being taxed twice on the same benefit. Instead: 

• one amount relates to benefits received in previous years that are still being collected through their tax code
• the other amount relates to benefits they’re receiving in the current tax year and which are now being taxed through payroll

If this causes hardship, the employee should be advised to contact HMRC to discuss options based on their circumstances.

If employees have questions about the benefits provided by their employer, they should contact their employer’s payroll or HR team. If their question relates to their tax code or historic tax underpayments, they should contact HMRC or check their personal tax account.

From April 2027, certain benefits in kind (such as company cars, van benefits and medical benefits) will be reported through payroll. This means the employer will include the taxable value of those benefits when calculating the tax due on employee pay each pay period. As a result, employees may notice: 

• a different amount of tax being deducted each pay period
• additional benefit-related information on their payslips
• a change in take-home pay compared to previous years